Microfinance sector returns to growth after 11 quarters of contraction, loan portfolio rises 5.3%

Kolkata: The microfinance sector turned the corner in the January-March period, after 11 quarters of intense portfolio contraction and heavy write-offs amid severe stress and operational challenges that caused the cumulative size of the market to hit a three-year low in December 2025.

The sectoral gross loan portfolio expanded to Rs 3.39 lakh crore at March-end from Rs 3.22 lakh crore three months earlier, representing a 5.3% sequential growth, data collated by Equifax India showed.

Also Read:

Prior to this, the market saw contraction quarter after quarter from the peak of Rs 4.43 lakh crore recorded on March 31, 2024.
The 30 days-plus mortgage delinquency rate declined across lender categories, according to the credit information company.
“Micro lending institutions need to keep their guard on and ensure that they don’t get into any overlending to households,” said Jiji Mammen, executive director at Sa-Dhan, the older of the two self-regulators for the sector.

“Moreover, there are several players operating in the same space, including lending apps and fintechs, which also need to be factored in while lending. The adherence to guardrails will be important for sustaining the future growth in microfinance,” he said.

The industry saw a 2.3% delinquency for the 30 days-plus bucket, making it the lowest level recorded in the past five quarters, a senior executive at Equifax India said. A steady decline in early delinquency rates was seen across all lending categories.

The turnaround was led by non-banking finance companies-microfinance institutions (NBFC-MFIs), private banks and other NBFCs, while the small finance banking segment continued to squeeze their cumulative microfinance business, the credit information company said in its monthly report.

Also Read:

Earlier, on March 30, ET highlighted a potential turnaround with month-on-month business growth recorded in February over January. Now, the quarter-on-quarter growth after a prolonged phase of contraction strengthens the belief that the sector is steadily coming out of the woods.

At the end of March, NBFC-MFIs together registered a 7.7% quarterly expansion in business to Rs 1.42 lakh crore, which helped the lender segment to increase market share to 42% from 41% three months ago. Private sector banks expanded their cumulative microfinance portfolio by 8.8% to Rs 89,548 crore, raising their market share to 26% from 25.6%. Other NBFCs, led by L&T Finance, expanded their portfolio to Rs 46,158 crore from Rs 45,141 crore.

In contrast, small finance banks reduced their cumulative microfinance exposure to Rs 50,725 crore at the end of March, from Rs 54,234 crore three months ago, as they sought to increase their secured loan portfolio to mitigate credit risk from unsecured business.